coworking space: the new kid on the block

360º

Colliers Radar

IndiaResearch20 March 2017

Coworking space:The New Kid on the Block

2 Coworking spaces: the New Kid on the Block | 20 March 2017 | Research | Colliers International

Surabhi Arora Senior Associate Director | Research | India

Uttara Nilawar Manager | Research | Mumbai

Parul Bhargava Senior Analyst | Research | Gurgaon

India offers a great opportunity for coworking space operators to profit from rising demand for flexible, innovative and collaborative workspace designs. We estimate that more than 1.2 million sq ft were leased by coworking operators in India in 2016, which accounted for 3% of the overall leasing volume. Although it represents only a small share of the total leasing demand, coworking operators are planning to lease 8 to 9 million sq ft by 2020. We foresee that the concentration of coworking spaces will intensify further in Bengaluru, Mumbai, and Gurugram thanks to the availability of adequate infrastructure and opportunities for start-ups in those cities. We recommend occupiers, especially small and medium enterprises, to consider use of flexible space for their office requirements in order to benefit from an integrated networking environment, greater cost-effectiveness and more innovative workspace design.

Executive summary

As the digital age advances and occupiers' requirements

evolve, use of flexible office space is becoming more

popular. Coworking space has ushered in a unique

culture of collaboration in the workspace environment.

Demand for coworking space has expanded to include

not only start-up occupiers but also large companies

looking for additional space on a temporary basis and

other occupiers with special space demands.

We believe occupiers can harness the potential of

coworking space in different ways to mitigate rising rents

and shortage of space in popular locations in cities such

as Bengaluru, Pune and Hyderabad. We recommend the

following strategies for different occupiers:

> Micro, small and medium enterprises (MSMEs)

should consider using coworking space to

reduce financial commitments, especially during

the period when they are still unsure about their

product and growth plans.

> Large occupiers in technology, fintech and e-

commerce industry should consider coworking

space to fulfil the requirement of site offices in

multiple locations.

> Organisations can also use coworking offices as

transitional workspace until they get their own

offices without compromising the quality and

location of their preferred office space. However,

as the coworking office market is still in its

nascent stage, the availability of large office

spaces may be a concern.

We believe that the growth of coworking space poses no

threat to property developers. On the contrary,

developers can capitalise on the high demand for

functional, flexible working space. Indian developers

such as K Raheja, RMZ Corp and Embassy Group are

some of the frontrunners, who appreciate the

opportunities offered by coworking space. In our view, a

strategic alliance between coworking operators,

developers and investors will emerge as a new trend in

India in the short to medium term.

Looking ahead, we expect that both international and

domestic coworking operators will establish a presence

in the central and suburban districts of main cities. We

foresee that the concentration of coworking space will

intensify further in Bengaluru, Mumbai, and Gurugram

(Gurgaon) due to the availability of adequate

infrastructure and opportunities for start-ups in those

cities. Hyderabad may also pick up the pace as

companies such as Apple, Google and Amazon, have

recently taken large office spaces in the city which will

create further opportunities for start-ups and a few

SMEs. Among Tier II locations, cities that have a high

presence of technology companies such as Pune,

Jaipur, Chandigarh, Ahmedabad and Kochi should also

witness the emergence of coworking hubs.

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Contents

Rise of Coworking spaces - the story

behind the growth……………………..4

Entry of international players to

ensure rapid growth ........................... 5

Bengaluru, Mumbai and Gurugram

(Gurgaon) to remain key locations .... 6

Flexibility, Networking opportunity,

and Cost-effectiveness continue to

drive demand ...................................... 7

Alternative for Swing spaces ................ 7

Office solutions to serve multiple

locations ............................................... 7

Flex-job requirement ............................. 7

Occupiers' Strategy - To maximise

benefits from newer office typology . 8

Start-ups and MSMEs ........................... 8

Large occupiers .................................... 9

Occupiers with special requirements .... 9

Developer Strategy - Leveraging the

demand .............................................. 10

Strategic Alliance emerging as a new

trend ................................................... 10

Franchise Model ......................... 11

Cost Sharing Model .................... 11

Revenue Sharing Model ............. 11








Rise of coworking space - the story behind the growth

Traditionally, office sector demand has been dominated

by the technology sector in India. In 2016, the

Information Technology (IT) industry represented around

58% of the total office demand in India and 41.6 million

sq ft of office space was leased in top nine cities. The

talent pool is primarily employed in the large IT service

industry and the industry usually prefers to lease large

office spaces, mainly in Tier I cities. However, mobile

technology has empowered an unprecedented focus on

new workplace designs, work styles, and work culture.

There is now a greater focus on creating more efficient

and cost-effective solutions such as flexible and

specialised workspaces. Business centres, serviced

offices, start-up incubators, accelerators and coworking

spaces are a few examples of such specialised

workspaces. Coworking co-exists in all of these models,

and many of the the leading operators have combined

the essence of business centres, fab labs and

accelerators into their product.

About half a decade ago, coworking operators emerged

alongside the start-up boom in India. Currently, more

than 160 operators facilitate coworking offices with over

350 operational centres across various Tier I and Tier II

cities in India.

In our opinion, India is currently in the early adopter's

phase if we use the technology adoption lifecycle. of

Geoffrey Moore to track coworking industry life cycle.

Although start-ups still dominate the coworking industry,

it has started to generate buzz among other occupiers as

well. The current user pool of coworking space has

expanded and now includes media, e-commerce

companies and a few corporates and multi-national

companies (MNC's) as well.

Medium sized start-ups who began their journey 2-3

years ago with 10-20 employees at coworking hubs, and

have expanded their size to 100-200 employees, prefer

to continue experiencing the community structure offered

by coworking hubs. On the other hand, several large

corporations occupy coworking spaces and use them as

transitional or satellite offices until they can move to their

permanent offices. Moreover, global giants like Oracle,

and Barclays have set up their accelerator programs to

mentor, educate, and support technology and fintech

start-ups.

According to the Colliers Research survey, coworking

operators leased about 1.2 million sq ft in 2016 and

accounted for 3% of the overall leasing volume. Although

this represents a small share in overall leasing,

coworking operators are making their presence felt due

to large leases indicating huge expansion plans.

Table 1: Key leases concluded by flexible/

shared space operators, 2016-2017

Client City Area Micro Market

WeWork Mumbai 2,25,000 Bandra Kurla Complex

WeWork Bengaluru 1,35,000 Residency Road

CoWrks (RMZ Group)

Bengaluru 1,50,000 Outer Ring Road

WeWork Bengaluru 1,12,000 Intermediate Ring Road

91 Springboard Navi Mumbai

60,000 Turbhe

91 Springboard Mumbai 46,000 Andheri East

The Executive Center

Bengaluru 30,000 Outer Ring Road

The Executive Center

Hyderabad 28,000 Secondary Business District (SBD)

Skootr Jaipur 27,000 -

Regus Mumbai 25,000 Bandra Kurla Complex

Avanta Business Center

Delhi NCR 25,000 NH8

CoWrks (RMZ Group)

Bengaluru 22,000 Old Madras Road

Awfis Delhi NCR 20,000 Golf Course Road

Regus Delhi NCR 20,000 CBD

Awfis Delhi NCR 15,000 Golf Course Road

Smartworks

Delhi NCR 15,000 Golf Course Road

Source Colliers International









Entry of international players to ensure rapid growth

Until recently, only small local players dominated the

coworking segment. Originally, coworking operators

started with a small footprint in India, but they are slowly

carving out a significant space in the real estate industry.

To cater to the high demand, developers like RMZ Corp,

K Raheja and Embassy Group have also collaborated

with local and international coworking operators to make

an entry in the industry.

WeWork, recognised globally as one of the most valued

shared space providers, has collaborated with India-

based Embassy Group to set up 6 million sq ft of shared

office space in Bengaluru, Mumbai and NCR by the end

of 2017. We expect more international players to follow

suit and enter the Indian market in coming years.

Another global giant, Regus, currently operating in a

business centre environment at 97 locations in India, has

planned to launch their coworking brand 'Spaces' in

Delhi by the end of 2017. 'Spaces' will primarily cater to

occupiers looking for a coworking space unlike the

current structure in Regus, where only a small

percentage of their office space is designated for

coworking occupiers.

Continuing on a growth path, Indian operators also have

huge expansion plans in coming years. Bengaluru-based

local operator, CoWrks is likely to expand its operation

by 2 million sq ft in Mumbai, Chennai, and Gurugram

(Gurgaon) by next year.

Other shared space providers like BHIVE Workspace

and 91springboard plan to double their floor plate area

by the end of 2017. The massive expansion plans of

these companies demonstrate the high demand for

coworking spaces. According to Sidharth Menda, CEO of

CoWrks, by 2018, the coworking space industry in India

will witness an annual industry-wide investment of

approximately $400 million per year.

"We have experienced maximum growth in the past two years. As of 2016, we have 10 big spaces across seven cities. We are hoping to increase this significantly this year." – Pranay Gupta, Partner, 91springboard

"With 10 spaces in NCR and Bengaluru and many more in the pipeline, we plan to build a coworking space in every 5 km radius, allowing the urban working population to be more productive. For the next 3-4 quarters we plan to expand our presence in the above locations, while getting selective footprint in other key locations such as Mumbai, Hyderabad, Pune amongst others." – Vikas Lakhani, Co-founder, InstaOffice

Business centres/Serviced offices

Coworking spaces Start-up Incubators &

Accelerators Makerspaces

First introduced in 2004 in India, they previously operated from hotels but now leading operators also operate business centres in their buildings.

Key Players

Regus, Vatika Business Centres, Avanta Business Centres

Fully managed shared workspaces facilitating networking events for collaboration. Suitable for all types of occupiers; based on an open floor plan format.

Key Players

WeWork, Awfis, 91springboard, InstaOffice, CoWrks, BHIVE Workspace

Bigger corporate provide workspaces called accelerators or innovation hubs, wherein they provide seed capital, mentorship, and networking opportunities to start-ups.

Key Players

NASSCOM 10,000 Start-ups Warehouse, T Hub, Think Rise

Maker spaces/ fabrication labs give people access to advanced digital manufacturing technology and necessary tools.

Key Players

Maker's Asylum Curiosity Gym

Figure 1: New office typology revolutionising the workspace market in India








Third largest start-up nation with 4,750+ start-

ups

Bangalore, NCR and Mumbai account for 70%

of the start-ups

MNCs are partnering and investing in start-ups

For example, Barclays - Think Rise

140+ Incubators and Accelerators; Vertical

focused accelerators on the rise

VCs invested INR271.6 million in Indian

start-up community in 2015 and 2016

Government has allocated INR100 billion

start-up corpus fund

Fastest growing community of start-ups;

Number expected to reach 12000+ by 2020

Source NASSCOM & VCCircle, Colliers International

The Government's Start-up India initiative is fuelling the

start-up industry in the country. According to a report on

the Start-up Investment Analysis by VCCircle, in 2015

and 2016, venture capitalists invested INR271.6 million

(USD4.1 billion) in the Indian start-up industry. The

government also allocated INR100 billion start-up corpus

fund to generate 1.8 million jobs. As of 2015, there were

about 4,750 start-ups, which is likely to grow to

12,000+ by the end of 2020 as predicted by

NASSCOM, a trade association of IT-BPM (Information

Technology - Business Process Management) industry

in India. In our opinion, start-ups are one of the primary

occupiers of coworking spaces and we expect this trend

to continue to develop in the future.

Bengaluru, Mumbai and Gurugram

(Gurgaon) to remain key locations

We expect that in the medium term both international

and domestic players will look to set up in central and

suburban districts across the main cities. Currently,

Bengaluru, the Silicon Valley of India, naturally has the

highest concentration of coworking hubs followed by

NCR and Mumbai. Pune, Chennai, and Hyderabad have

a relatively smaller share of the coworking industry. We

foresee that the concentration of coworking spaces will

intensify further in cities such as Bengaluru, Mumbai,

and Gurugram (Gurgaon) thanks to the availability of

adequate infrastructure and opportunities for start-ups.

Hyderabad may also pick up the pace as companies

such as Apple, Google and Amazon have recently taken

large office spaces in the city, which will create further

opportunities for start-ups and a few SMEs to set up their

base in the city. Among Tier II locations, cities that have

a presence of technology companies such as Pune,

Jaipur, Chandigarh, Ahmedabad and Kochi will also

witness the emergence of coworking hubs.

“We plan to expand our existing portfolio of 0.1 million sq ft to 0.2 million sq ft by 2017. In addition, we hope to sign up 10,000-50,000 members within the next 1-3 years.” – Ravindra M.K, Co-founder, BHIVE Workspace

According to our study, most of the coworking spaces in

these cities are located in central, off central and

suburban districts. Flexible workspaces experience high

occupancy rates of 80-90% in CBD’s, while other

locations witness occupancy rates of around 60-75%. In

our opinion, it is essential for a coworking space to be

located in well-connected areas to be competitive. Start-

ups prefer to be close to their vendors and clients.

Moreover, strategically located coworking hubs may also

capture the demand of traditional technology and

financial companies that are looking for extra spaces

closer to their existing offices.

Figure 3: Concentration of coworking space in

India

Figure 2: Key trends in the start-up ecosystem








Figure 4: Flexible Workspace trends


Flexibility, networking opportunity,

and cost-effectiveness continue to

drive demand

Currently, the demand for coworking space in the Indian

market is primarily driven by cost-effectiveness and

networking opportunities. These factors drive demand

among occupiers who can benefit from advantages

offered by coworking spaces.

> Most coworking spaces in India offer hourly,

daily or monthly memberships as opposed to

traditional office leases which lock the occupier

for a three-year term.

> Coworking provides occupiers the flexibility to

upscale or downscale their operations without

the burden of fixed costs involved in traditional

leases which are also rather inexpensive in

comparison to elite business centres operating

in hotels or CBD locations.

> Most of the Indian coworking operators claim

that occupiers can save up to 30% for

companies with less than 50

employees,compared to the expenses involved

in a traditional office space.

> Most of the coworking spaces are in CBD and

SBD locations, and therefore provide cost-

effective location advantages to the occupiers.

> Rapidly growing, micro and small businesses

which primarily comprise less than 50

employees, have a lot of uncertainty around

cash flow, growth and scale of operations and

find it convenient to lease spaces in coworking

offices.

> Also, corporates across the globe are showing a

strong interest and are providing financial

support and programs for development,

personalised mentorship and go-to-market

strategies to new entrepreneurs. Hence,

networking events benefit not only the coworking

members but also the company, which can have

access to the latest innovation and newer

markets.

In our opinion, although flexibility, networking

opportunities, and cost-effectiveness will continue to

remain the key demand drivers, we also foresee that the

following trends will further fuel the demand for

coworking spaces.

Alternative for Swing spaces

Swing spaces are used as a temporary occupancy by

any organisation during renovation, fit outs or

construction. Swing spaces cannot be labelled as

permanent office inventories. Hence, we believe that

coworking areas are likely to be used as an alternative

for swing spaces in buildings used by larger firms.

Office solutions to serve multiple locations

We believe corporates from the technology and

consulting sectors, whose function requires significant

interaction with clients at multiple locations, may opt for a

few seats in coworking spaces at various locations. It

allows employees to spend time more efficiently and

meaningfully while limiting the amount of unused space

in larger offices. We expect the trend to pick up in the

short term especially in tight vacancy markets. Besides,

it can be an efficient and optimum solution for larger

companies where 50% of office space sometimes

remains unutilized due to continued inflow and outflow of

employees at various site locations.

Flexjob requirement

With millennials representing the largest generation in

the workforce in the years to come, there will be a

structural shift in the way business is done. It is

estimated that by 2025, Generation Y will represent 75%

of the global workforce. A recent survey of 3000 people

by FlexJob provided insights on expectations of

millennials from their employers. According to the

survey, 82% of millennials cite flexibility as a major

factor when evaluating job prospects, thus flexible work

options like variable start and finish hours, extended

weekends and part-time arrangements are likely to

increase in coming years.

DEEP DIVING INTO COWORKING

160 operators in India

More than 50% centres based in Bengaluru,

NCR and Mumbai

350 locations across India

Occupancy 60-80%

1.2 million sq ft space leased in 2016 by major

players in Grade A offices

Cost savings of 25-30% for small enterprises









Recently, PwC surveyed 44,000 of its employees in the

US to know the reasons behind its high attrition rate.

About 80% of their employees, who are millennials,

demanded flexibility in their work schedules. As an

outcome, the company plans to convert all of its US

offices into coworking spaces where employees can

reserve a seat or an office to work. PwC also claimed

that this move could entail cost savings to the tune of

millions of dollars. We expect other companies to follow

suit in the coming years and if not, they may at least

consider to have a part of their business operating within

coworking spaces.

“Currently operating from multiple locations in India, we have 0.5 million sq ft of inventory. We hope to increase to around 20,000 seats by the end of 2017” – Amit Ramani, Founder & CEO, Awfis Space Solutions Private Limited

Occupiers' strategy - to maximise benefits from newer office typology

Flexibility remains one of the fundamental propositions of

newer office typologies whether it is a serviced office,

business centre, incubator or a coworking establishment.

Flexibility makes them suitable for different kinds of

occupiers. In fact, there is a blurred line of distinction

between a serviced office, a business centre and a

coworking space. With the entry of international players

such as WeWork, offering serviced offices as well as a

coworking space within the same location, this line of

distinction will blur further in coming years, and it would

be more appropriate to call them flexible office solution

providers. As India is still on the verge of witnessing

international players' presence, we expect the industry to

see much more experimentation regarding amenities

and facilities in such establishments.

Traditionally, nine years (3+3+3) lease structure is the

most popular and widely used option among occupiers of

all kinds. Grade A establishments at prime locations are

expensive in most major cities, and due to the cost

constraint, only top companies or multinationals can

afford to lease such offices. Short term office spaces

requirements increased the popularity of business

centres in 2007. One can find a business centre in a five-

star hotel or in grade A establishments in India. They

provide cabins as well as contiguous floor plates along

with access to business lounges, conference rooms,

cafeterias and other amenities. However, due to their

expensive nature, they remained a preferred option for

venture capital funds, liaison offices of foreign

companies and elite occupiers.

With the advancement of the digital age and

requirements of various occupiers, serviced offices

sprung up for occupants who needed to work together

and avoid isolation. Coworking spaces served as a

viable solution to not only start-up occupiers but also

freelancers, one-person businesses, corporates looking

for temporary offices, site offices, along with companies

with unique requirements.

We believe all kind of occupiers can harness the

potential of coworking spaces in different ways given the

rising rents and tight office space market at preferred

locations in cities such as Bengaluru, Pune and

Hyderabad. We recommend the following strategies for

various occupiers to profit from the growth of coworking

spaces.

Start-ups and MSMEs

MSMEs should consider coworking spaces to cut costs.

The initial set up of an office space may be a daunting

task for a small start-up and small-scale companies as

requires a significant financial commitment.

With only a few people on board and uncertainty around

growth plans, they may not be able to maximise

workspace efficiency.

Table 2: Average desk costs

City CBD Average Desk Cost (INR)

CBD Average Desk Cost (US$)

SBD Average Desk Cost (INR)

SBD Average Desk Cost (US$)

Mumbai 15,000 - 27,000 220 - 400 8,000 - 15,000 120 - 220

Gurgaon 10,000 - 15,000 150 - 220 6,000 - 12,000 90 - 180

NOIDA 8,000 - 12,000 120 - 180 4,000 - 8,000 60 - 120

Bengaluru 7,000 - 13,000 100 - 200 4,000 - 8,000 60 - 120

Chennai 8,000 - 15,000 120 - 220 8,000 - 10,000 120 - 150

Pune 5,000 - 8,000 75 - 120 4,000 - 5,000 60 - 75

Hyderabad 5,000 - 12,000 75 - 180 4,000 - 10,000 60 - 150








Table 3: Occupier Strategy

Source: Colliers International

Coworking gives an option for scalability. In our

discussion with a few domestic players such as

91springboard and BHIVE Workspace, the occupiers of

small setups employing between 25 to 50 staff can profit

from a cost cut of at least 25-30% initially if they opt for

a coworking space. Also, it saves them from a strong

financial commitment when they are still unsure about

their product and growth plans.

MSMEs that want to offer their employees an option to

work flexible hours and work virtually to avoid the hassle

of long commutes but could not do due to the high cost

involved in setting up office spaces in multiple locations

should tie up with flexible office operators in business

centres and serviced offices. Players such as BHIVE

Workspace, 91springboard and InstaOffice claim that 40-

50% of their tenants/members are SMEs.

Large occupiers

Large occupiers, especially in technology, fintech and

the e-commerce industry have different site locations

based on the type of project and contract with other

companies. The project timelines can range anywhere

from a few months to a few years. Coworking operators

offer prime office solutions, high-quality technology

infrastructure, access to the young-skilled workforce and

a strategic location. We think coworking hubs can fulfil

the requirements of site offices for these companies. An

emerging e-commerce player has recently moved their

office to a 90 seater coworking facility in Mumbai. They

claim that this move should help them reduce their cost

by 20%.

Emerging as a new trend, some organisations are also

using coworking spaces for their transitional office

requirements. Once an organisation leases an office

space, it takes about 3 to 6 months in fit outs to make

the office operational. However, as the coworking office

market is still in its nascent stage, the availability of the

required office space may be a concern and may not

work out for many organisations.

Occupiers with special requirements

Occupiers with special requirements may find it easy to

meet their requirements by teaming up with coworking

spaces. For example, Fab Labs (fabrication laboratory)

that require a fitted workshop for innovation and

experimentation in specialised fields like robotics and

OFFICE TYPE KEY DIFFERENTIATORS OCCUPIER STRATEGY

Leased Office - 3+3+3 year lease

- permanent space for employees

- choice of Grade A, B and C establishments

- high fixed costs

- large occupiers

- MNCs preferring permanent offices at strategic locations irrespective of the cost

Serviced Office/Business Centre

- furnished offices with dedicated cabins

- facility to book offices for a few hours to a few months (flexibility in leasing, no fixed costs)

- access to several amenities like business lounge, meeting & conference rooms, recreational area, cafeteria, etc.

- mid-sized companies like venture capital funds, liaison offices of foreign companies and elite occupiers

Coworking spaces - furnished offices with dedicated cabins

- facility to book offices for a few hours to a few months (flexibility in leasing, no fixed costs)

- access to several amenities like business lounge, meeting & conference rooms, recreational area, cafeteria, etc.

- networking events and opportunity to interact with investors and other entrepreneurs

- freelancers, start-ups, e-commerce companies

- corporates looking for temporary offices, site offices

- companies with JV operations looking for project offices, makerspaces and accelerator programs








manufacturing have teamed up with a few coworking

operators. The coworking operator not only provided

them with dedicated spaces but also the necessary fit

outs for such operations. Maker’s Asylum is one of those

community makerspaces in Mumbai and Delhi equipped

with all necessary hand tools, power tools, 3D Printers

and a laser cutting machine for hardware entrepreneurs.

Recently, institutions such as Oracle and Barclays have

teamed up with local coworking players to set up their

incubation centres in Bengaluru and Mumbai. We advise

similar companies to explore options with coworking

space providers before investing in huge office spaces.

This overall flexible culture and networking opportunities

can also help companies retain and enhance their talent

pool. Companies sometimes create a joint venture to

work on a particular project that will last for a definite

time. If a company do not wish to house their employees

in parent offices for a specialised and confidential

project, they can take up a private space at a coworking

hub for the duration of the project.

Developer Strategy – Leveraging the demand

We do not believe that the growth of coworking space is

a threat to developers, but it certainly has various

implications for the office property market. Traditionally,

Grade A developers work on a long lease structure in

India whereas Grade B developers tend to strata sell

their buildings that are still under construction to

investors.

Nowadays, many occupiers prefer plug and play offices,

and developers are getting more and more flexible in

providing fully furnished offices. Developers realise they

need to adapt and meet the needs of occupiers which

primarily consist of technology, financial services and

consulting firms. These businesses have a greater

percentage of Millennials who prefer to work in a more

collaborative and open environment. In 2016, the

technology giant Microsoft in the US offered a

membership at WeWork to 300 employees. These

trends will slowly be adopted in India as well with IT firms

striving for innovation and coworking spaces acting as a

centre for research and development activities.

As the concept of coworking gained traction in 2016, a

handful of developers have recognised the potential of

this emerging trend and made their first move. Some

developers have partnered with operators while others

have formed their own coworking spaces within their

own buildings. Bangalore-based CoWrks (RMZ Group)

has dedicated an entire floor plate in RMZ Eco World to

coworking. The early bird entry not only helps the

developer achieve a bigger share in the flexible

workspace segment but also be in a better position to

face competition from international players. In our

opinion, strategic alliance with coworking operators has

opened up a new avenue for developers and represents

an enormous untapped opportunity to attract new

occupiers and retain existing tenants.

"We see a fundamental shift in the demand for commercial real estate, and we expect coworking and serviced offices to become a meaningful part of the office-leasing segment soon. 55% desks in any corporate office are vacant at any point. Consequently, we see distributed and flexible offices as an integral part of the workplace strategy of both early stage and mature corporations. Additionally, there are over 170 million mobile professionals in the country." - Vikas Lakhani, Co-founder, InstaOffice

Strategic alliance between coworking operators, developers and investors emerging as a new trend

While some developers are directly offering flexible office

arrangements to tenants, a few of them are embracing

the change and are partnering with leading coworking

space providers to run their facilities. Initially, it started

with leasing vacant space to coworking operators just

like a traditional lease. With the success coworking









spaces in their own facilities, developers are foreseeing

the upcoming opportunities, creating the rise of a

strategic alliance between coworking operators and

developers. We conducted several interviews with

industry experts and concluded that the following

partnership models are prevalent in the market between

coworking operators, developers and other investors.

Cost sharing model allows players to focus on their core expertise

A few developers have opted for a cost sharing model

wherein various components of coworking spaces are

sponsored by different partners/investors. Expenses

incurred for conducting events and networking

opportunities, internet connection and fit outs can be met

by one or more of the partners/investors who have

domain expertise, and profits are then shared in

proportion to their respective contribution. This model

allows developers to remain focused on their key

business areas while venturing into this evolving

segment.

Revenue sharing model – aiding aggressive moves of global flexible workspace giants

A revenue sharing model is also emerging, where the

developer pays for the building costs and fit outs while

the coworking operator collects a proportion of the

building’s revenue as a fee for its workspace designs,

brand and software for managing the building, staff

training and its global network of members. A recent

example is the WeWork and Embassy Group

collaboration through a revenue sharing arrangement.

Also, Barclays launched its fintech innovation hub ‘Think

Rise’ in Mumbai in partnership with Zone start-ups, an

accelerator program which primarily aids in customer

development and provides support activities to start-ups.

The Mumbai site is the seventh global innovation centre

LEASING FRANCHISE MODEL INVESTOR & COST SHARING MODEL

REVENUE SHARING MODEL

Leasing of office spaces and converting them to coworking spaces by refurbishing

Strategic alliance with large coworking operators to leverage on industry expertise and global network

Cost sharing among partners for leasing, fit outs furniture, technology networking events, etc.

In lieu of building space and fit outs, coworking operators share revenue with developers

Table 4: Developer Strategy








of Barclays and is managed by 91springboard, a

coworking community in India.

As the office segment evolves in peripheral areas on the

back of improved infrastructure, coworking spaces are

also likely to expand in emerging and peripheral

locations in main cities to reduce occupiers' commute

time. This fits well for developers with a high vacancy in

their existing buildings or micro markets with significant

upcoming supply. In our opinion, developers should

focus on non-performing buildings, adaptive reuse and

develop them as coworking hubs. Recently, in

Singapore, Ascendas-Singbridge entered into a

partnership with Spacemob, the Vertex backed

coworking space operator to launch a second coworking

space in Singapore Science Park. This facility will

provide small businesses with cost sensitive solutions

along with proximity to R&D institutions, high-tech

innovation and start-ups. With numerous Special

Economic Zones (SEZs), industrial and science parks in

the main cities, a similar partnership could also be

adopted by developers in India.

As the coworking sector matures from its current nascent

stage, there will be more and more strategic alliances

between property owners and operators and newer

models will emerge. The changing dynamics will force

developers/operators to differentiate their products in

terms of amenities, offerings and quality of space.







s.

Copyright © 2016 Colliers International.

ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.

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Primary Authors: Surabhi Arora Senior Associate Director | Research +91 124 456 7580 [email protected] Uttara Nilawar Manager | Research [email protected] Parul Bhargava Senior Analyst | Research [email protected]

Contributors: Andrew Haskins | Executive Director | Research | Asia +852 2822 0511 [email protected] Amit Oberoi National Director | Knowledge Systems +91 124 456 7571 [email protected]

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coworking space: the new kid on the block

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